6 biggest risks to your retirement security

What worries you most about retirement? Well, if you’re like most retirees and pre-retirees maintaining the value of your savings and having your investments keep pace with inflation concern you most, according to a new survey published by the Society of Actuaries.

These findings might not come as a surprise to anyone saving for or living in retirement. But there’s plenty in the SOA report that you ought to consider no matter whether you’re retired or saving and planning for retirement.

“There are areas where people can do a little bit more planning,” said Cindy Levering, a retired pension actuary and member of the SOA’s Committee on Post-Retirement Needs and Risks. Here’s a look at some of the key findings and some action items.

Beware of scams and fraud

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First off, people aren’t too concerned about some of the risks of retirement, according to the SOA report. And two, many retirees are unaware of all the risks they might face in retirement. For instance, the SOA suggests that many people are unconcerned with or unaware of the risk of fraud or a scam.

“The one that struck me in (our) report is that very few people were concerned with being a victim of fraud or scam,” said Levering. She noted that people, especially as they get older and their cognitive abilities change, may think that they won’t be taken in by a scam or fraud, but it happens all the time.

So, action item No. 1 for retirees and pre-retirees would be this: At a minimum, become familiar with all the in-retirement risks and the ways that you can manage them, especially those involving scams and fraud.

Americans, or at least those surveyed in the SOA report, are seemingly focused on cash flow management, and managing expenses so that they could be covered by current income. “They seemed more focused on dealing with risks as they occurred than as part of specific risk management strategies that anticipate them,” wrote the authors of the report.

Said Levering: “We found that people generally don’t have a very long planning horizon. They are looking at it on a more day-to-day basis, adjusting their expenses to meet their income. And while that might work when things are going along nicely, if there are huge (unanticipated) expenditures such as home repairs, car repairs, health or long-term care, that all goes out the window.”

Retirees and pre-retirees also say they will reduce significantly expenses if it looks like they will run out of money due to unforeseen circumstances in retirement. And some might try to return to work, downsize their house, and dip into money they might have otherwise left to their children or other heirs. The actionable advice given this finding: Reducing expenses ought to be viewed perhaps as a last-resort risk management strategy. Contemplate first-resort strategies long before you run out money due to unforeseen circumstances.

Seize the moment

Don’t worry if, as a pre-retiree, you are more concerned about your short- and long-term financial future than current retirees. That’s the norm apparently. What should worry you, especially if you are already retired, is this: Many retirees who are unconcerned with in-retirement risks have neither the resources nor a plan in place for risks such as long-term care. The takeaway? Don’t wait until it’s too late to acquire the resources and to put in place plans to deal with retirement risks.

Inflation could adversely affect your nest egg

Many retirees and pre-retirees think inflation will have an adverse effect on the amount of money they will need in retirement. And they would be right in thinking that. Consider: Something that cost $1 in 1983 would cost $2.30 in 2013. Or think of it this way, you’d need set aside $2.30 today to pay from something that would cost $1 in roughly 30 years — which is roughly the duration of retirement for some.

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